NPA & SARFAESI Solutions by DocDebt

Securitization and Recovery of Financial Assets & Enforcement of Security Interest (SARFAESI) Act was passed an act of Parliament of India in 2002. Before this period, Banks had to go to the Civil courts for each recovery case and wait for ages to recover their money.

To ensure better recovery and ease of doing business, the Act defined the entire process of recovery and empowered the Authorized officer from the bank to act as a quasi judicial officer and take steps to recover the amounts without the need for court intervention. Over 23 years, this act has completely eased the process of recovery for the bank. On the other hand, the borrowers have to face the brunt of such action.

So what is the way forward for borrowers who are in NPA (Non-Performing assets) situation? Let us go through the background and identify the issues as well as solutions.

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SARFAESI Act - A Borrower's Perspective

Understanding the SARFAESI Act

Impact on Borrowers

Over 23 years, this act has completely eased the process of recovery for the bank. On the other hand, the borrowers have to face the brunt of such action.

So what is the way forward for borrowers who are in NPA (Non-Performing assets) situation? Let us go through the background and identify the issues as well as solutions.

What is NPA?

A Bank lends money to home purchasers, businessmen, corporates and SMEs for their needs. Interest is the income of the bank and the borrower is supposed to repay the amount in Equated Monthly Instalments (EMIs) which are spread across a pre-approved tenure (generally 5,10 or 15 years). For ease of understanding, we have taken only collaterized loans i.e home loan for purchase of property or Loan against property which the property is given as collateral.

NPA to Auction Process (9-12 months)

Loan Default (3 EMIs missed)

When a borrower fails to repay 3 EMIs, the Bank declares the loan account as NPA.

Demand Notice Issued

The Bank issues a Demand Notice recalling the loan and informs the borrower to repay the full outstanding amount within 60 days of the date of the demand notice. The bank also informs the borrower not to alienate the property without clearing the bank dues. It also notifies the public at large informing them of the mortgage existing on the property and ensure clearance from the bank to purchase the property.

Symbolic Possession

If the borrower continues the default after 60 days, the bank issues a Symbolic possession of the property informing the borrower and public that the bank has taken possession of the property under the SARFAESI Act.

Physical Possession Order

The Bank then approached the jurisdictional Chief Metropolitan Magistrate(CMM)/Chief Judicial Magistrate (CJM) court to take the physical possession of the property. Once the CMM/CJM gives the physical possession order as per the Act, the bank takes physical possession of the property with the support of the jurisdictional police and court commissioner. Adequate notice is given to the occupants of the property and they are evicted from the property as per the process.

Auction Notice Published

Finally, the bank publishes the auction notice to invite tenders from purchasers, who are interested in purchasing the property. After payment as per the bid price, the property is registered to the purchaser. The entire process from NPA to Auction, takes around 9-12 months.

Rights of the Borrower

The borrower can pay the back due EMIs and regularize the loan account during the NPA period or even after the issuance of Demand Notice. The discretion lies with the Authorized officer to regularize the loan or proceed with the auction. The borrower can redeem the property by paying the full outstanding amount before the date of publication of auction.

In case the borrowers are aggrieved by the process, they can approach the jurisdictional Debt Recovery Tribunal (DRT) to get legal remedy. Further appeal can be done with the jurisdictional Debt Recovery Appellate Tribunal (DRAT) after paying the applicable court fees.

Practical Solutions for NPA Situations

Scenario 1

If the borrower can raise funds through his/her own sources, he/she can pay the full outstanding amount and release the property.

Scenario 2

The borrower can sell the property with prior approval of the bank. He/She can pay the proceeds from the sale to the bank, release the property and then register the property to the purchaser.

Scenario 3

In extreme cases, where there is a genuine reason (Eg. Death, Business/Job loss, Pandemic etc) the Bank has the discretion to waive off penal interest and give a One-Time Settlement (OTS) to the borrower. Upon payment of the OTS amount as the agreed, terms the property can be released by the bank. The bank also has the authority to restructure the loan and give moratorium or flexible payment terms to the borrower.

Scenario 4

Again in exceptional cases, the borrower can avail loan from another bank to repay the current loan and get flexible payment terms and time to repay the loan from the new bank.

Our NPA Resolution Services

OTS Negotiation

Expert negotiation with banks for favorable One-Time Settlement terms and waiver of penal interest.

Loan Restructuring

Structured approach to loan restructuring with moratorium or flexible payment terms.

DRT/DRAT Representation

Legal representation at Debt Recovery Tribunal and Appellate Tribunal for aggrieved borrowers.

Property Sale Facilitation

Assistance in selling property with bank approval to clear dues and avoid auction.

How DocDebt Can Support You

Each NPA case is unique and has to be studied in detail. We will review the profile of the borrower, property, outstanding amount, current financial situation and provide the right solution to the borrower to get out of the crisis. The solution will provide a more disciplined and structured approach for the repayment of the debt and provide relief to the borrowers in terms of time and repayment schedule. The basic premise is to get the borrower out of short term distress and provide a long term sustainable solution.

Case Analysis

We study each unique NPA case in detail, reviewing borrower profile, property details, outstanding amount, and current financial situation.

Right Solution

We provide the right solution to help borrowers get out of the crisis based on their specific circumstances.

Structured Approach

We provide a disciplined and structured approach for debt repayment with relief in terms of time and payment schedule.

Sustainable Solution

Our basic premise is to get borrowers out of short-term distress and provide a long-term sustainable solution.